Restitution and Banking Law

Francis Rose

• Publisher: Informa Law from Routledge
• Year: 2020
• ISBN:
  9781000285857
• Edition: 1
• Topic: Law
• Subtopic: Financial Law
• Index: Law

Restitution and Banking Law, written by leading practitioners and commentators, combines their experience in the field of restitution law and banking law to discuss major issues.

1

Unauthorised Payment and Unjust Enrichment in Banking Law

DH VAN ZYL*

A. INTRODUCTION

The title of this paper was initially intended to be “Indirect or Third-Party Enrichment in Banking Law”. During the course of my research on and preparation of the subject matter, however, it became clear to me that such title might be misleading in the context of establishing whether or not a bank, which has made an unauthorised payment in respect of a cheque drawn on it by a customer or client, should have an enrichment claim against the payee or recipient of the payment.¹ The more so is this the case when the unauthorised payment in issue is that which arises from the honouring by a bank of a forged cheque or of a cheque which has been countermanded. In such cases the payee or recipient is usually described as the third party (C) in the “triangular situation” in which the other two role players are the customer (A), as ostensible drawer of the cheque, and the bank (B), as drawee thereof.²

* Dr Jur (Leyden), Ph.D, LLD (Cape Town), D Litt (Free State); Judge of the Cape High Court.
The abbreviations used include the following: ASSAL (Annual Survey of South African Law); CILSA (Comparative and International Law Journal of Southern Africa); MBL (Modern Business Law); SAU J (South African Law Journal); THRHR (Tydskrif vir Hedendaagse Romeins-Hollandse Reg); TRW (Tydskrif vir Regswetenskap); TSAR (Tydskrif vir die Suid-Afrikaanse Reg).

¹ In this paper I shall refer to a “customer” rather. than a “client” and to a “recipient” rather than a “payee”, although the terms are at times used interchangeably. This is the terminology preferred by H Luntz, “The Bank’s Right to Recover on Cheques Paid by Mistake” (1968) 6 Melb ULR 308. At 309 n 4 the learned author explains that the term “payee” may cause confusion between the designated payee on a cheque or bill of exchange and the person who actually receives payment.

² The image of a “triangular situation” involving three parties is reflected in an article by FR Malan, “The Rule in Price v Neal” (1978) 11 CILSA 276, 276, where he describes the issues arising from a bank’s right of recovery under these circumstances as “problems of enrichment equalisation in intricate triangular situations”. See infra, text to n 79.

The possible enrichment of the third party in this situation is far removed from the “third party enrichment” which arises when transactions between A and B, on the one hand, and B and C (a third party), on the other, have the result that C is enriched at the expense of A. Enrichment of this nature is frequently referred to as “indirect enrichment”, which, under certain circumstances, may give rise to an action by A against C.³

In the civil law (in the sense of the Roman law based European jus commune) the enrichment action in such cases has sometimes been described as the “extended” actio negotiorum gestorum arising from the unauthorised administration (negotiorum gestio) of the affairs of another.⁴ As will be pointed out later, this action may have some relevance in South African law as an alternative to an enrichment action by a bank against a third party where the bank has made an unauthorised payment to such third party. The difference is, however, that the alternative action may be available against the customer (A) rather than against the third party (C). This is an illustration of how the wonderful world of the “mixed” or “hybrid” legal system, such as that of Scotland and South Africa, can function in practice: by its very nature it can extract the best from both common and civil law sources and, in this way, resolve issues in a creative and innovative way.⁵

Although I have used the term “unauthorised payment” in the title of this paper, it must be pointed out that, in almost all the sources to which I have had recourse, the term “mistaken payment”, or a variation thereof, is used. This is the case, it would seem, in at least those legal systems to which I have referred for purposes of this paper. In this regard, however, it must be remembered that “unjust enrichment” and “restitution” are not synonymous. These concepts have, indeed, been the source of endless confusion because of the different meanings they bear in common and civil law.⁶

³ See AM Honoré, “Third Party Enrichment” [1960] Acta Juridica 236 and JP Dawson, “Indirect Enrichment” in lus Privatum Gentium: Festchrift für Max Rheinstein 2 (1969) 789. The latter deals more specifically with German law, as do C-W Canaris, “Der Bereicherungsausgleich im Dreipersonenverhältnis” in Festschrift für Karl Larenz (1973) 799 and U Meyer, Der Bereicherungsausgleich in Dreiecksverhältnissen (1979). On indirect or third party enrichment in “mixed” legal systems such as those of Scotland and South Africa see the recent contributions of NR Whitty, “Indirect Enrichment in Scots Law” in [1994] JR 200 and 239 and JC Sonnekus, “Ongeregverdigde Verryking en Ongeregverdigde Verarming vir Kondikering in Drie-Party Verhoudings” in [1996] TSAR 1. On the somewhat different approach in English law see LD Smith, “Three Party Restitution: A Critique of Birks’s Theory of Interceptive Subtraction” (1991) 11 OJLS 481 and K Barker “Restitution and Third Parties” in [1994] LMCLQ 305. These and other authorities are dealt with in my judgment in Absa Bank Ltd v Stander 1998 (1) SA 939(C).

⁴ See DH van Zyl, Negotiorum Gestio in South African Law (1985), 113–118, with historical foundations in DH van Zyl, Die Saakwaarnemingsaksie as Verrykingsaksie in die Suid-Afrikaanse Reg (diss Leyden 1970), 60–61, 80–81, 87–88, 95–96.

⁵ See on the interaction of civil and common law in South Africa RW Lee, “The Roman-Dutch Law in South Africa: The Influence of English Law” in (1969) 1 Colombo LR 1; DP Visser, “Daedalus in the Supreme Court: The Common Law Today” in (1986) 49 THRHR 127; R Zimmermann, “Synthesis in South African Private Law: Civil Law, Common Law and Usus Hodiernus Pandectarum” in (1986) 103 SAU J 259; D van der Merwe, “Judicial Institutions in the Civil Law: Towards a Theory for Common-Law Adjudication” in [1993] TSAR 580.

B. THE RELATIONSHIP BETWEEN BANKER AND CUSTOMER

It is generally accepted that the relationship between banker and customer is one of mandate rather than agency. The customer is the mandator and the bank the mandatory. In the case of a current account, there is a general mandate which provides that the bank will accept and pay cheques drawn upon it, subject thereto that the customer has sufficient funds in, or overdraft facilities attaching to, his current account.⁷ A further provision is that the cheque must be valid and payment thereof authorised. This means that the bank must act within the terms of its mandate from the customer by not, for example, paying out a cheque bearing the forged signature of the customer and likewise not honouring a cheque on presentation when it has been countermanded or “stopped” by the customer. If a forged or countermanded cheque is indeed paid out, the bank acts without a mandate or authority and cannot debit the customer’s account with the amount of the cheque.⁸

It is of singular importance to note that the underlying agreement between the customer and the person in whose favour a cheque is drawn is irrelevant for purposes of determining the rights and obligations arising from the mandate agreement between the bank and customer. A bank which effects payment of a cheque in accordance with its mandate and within its authority has no interest in the underlying agreement or in the reason for the payment by cheque. It is, for all practical purposes, no more than a conduit or “neutral functionary” whose payment of the cheque facilitates performance by the customer, as debtor in terms of the underlying agreement, to the third party payee, as creditor in terms thereof. By paying the cheque the bank does not effect performance of the customer’s obligation to the third party. It is the customer who performs with the assistance or through the mediation of the bank. The customer remains the solvens (payor) and the third party the accipiens (payee or acceptor) in terms of the underlying agreement.⁹

⁶ See E Schrage, B Nicholas, “Unjust Enrichment and the Law of Restitution: A Comparison”, in E Schrage (ed), Unjust Enrichment: The Comparative Legal History of the Law of Restitution (1995)9–30; DH van Zyl, “Unjustified Enrichment and Restitution: An Awakening Giant Creates Confusion” in (1996) 21 TRW 1.

⁷ Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd [1980] QB 677, 69...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Preface
• Table of Contents
• List of Contributors
• Table of Cases
• Table of Statutes
• Table of Codes and Conventions
• 1. Unauthorised Payment and Unjust Enrichment in Banking Law
• 2. Distributing the Burden of Alternative Co-extensive Liabilities: Some Banking Cases Considered
• 3. Undue Influence and Misrepresentation after O’Brien: Making Security Secure
• 4. Undue Influence and Misrepresentation after O’Brien: Making Security Secure — A Commentary
• 5. O’Brien, Notice and the Onus of Proof
• 6. Cross-Border Security Enforcement and the Conflict of Laws
• 7. Cross-border Security Enforcement, Restitution and Priorities
• 8. Tracing and Electronic Funds Transfers
• 9. Assisting a Breach of Duty by a Fiduciary, the Common Law and Money-laundering
• 10. Recovering Misdirected Money from Banks: Ministerial Receipt at Law and in Equity
• 11. The Burden on the Bank
• Bibliography
• Index